State weighing options on 16 per cent fuel tax

National Treasury and Planning CAS Nelson Gaichuhie when he appeared before the Senate energy Committee over the sixteen percent VAT on petroleum products. September 12, 2018. Photo/Jack Owuor

The government could slash the development budget as an option to the 16 pecent Value Added Tax on fuel that has sparked public outrage.

National Treasury chief administrative secretary Nelson Gaichuhie said this yesterday when he defended the tax before the Senate Committee on Energy.

‘’The government acknowledges the toll the new tax has on Kenyans. Even so, it has an obligation to collect Sh35 billion from the tax every month to seal a budget deficit. We are exploring other alternatives including slashing development budget,’’ he said.

He however cautioned that such a measure will dent the country’s fiscal plan, adding that National Treasury is open to more options.

‘’We are in consultation with Parliament and other relevant stakeholders to find a better alternative. Treasury CS Henry Rotich and other leaders are holed at State House to solve this quagmire,’’ Gaichuhie said.

If Kenya settles on cutting development budget as an alternative to VAT on fuel, it means this year’s development budget of Sh625.1 billion which is only 24 per cent of GDP will drop even way lower than IMF’s target of 30 per cent of GDP.

Kenya promised IMF to adhere to the fiscal responsibility principle which requires 30:70 ratios of development and recurrent expenditures respectively as a condition to extending the Sh150 billion precautionary facility that expires on Friday.

Cutting down on development budget will also halt planned infrastructure development projects for the year including construction of hospitals, roads, schools and other social economic activities.

‘’Why can’t you consider raising tax for cigarettes and alcohol which are unhealthy instead of tormenting Kenyans with high fuel prices that has led to high cost of living? Kenyans can do without cigarettes,’’ Ole Kina said.

Petroleum products continue to attract 16 per cent that came into effect on September 1 despite court temporality suspending the order.

Both Gaichuhie and Energy Regulatory Commission director general Pavel Oimeke told the Ephraim Maina led committee that they were yet to be served the order.

On Thursday last week, High Court in Bungoma issued temporary orders stopping the implementation of VAT on petroleum products.